Subway, which has been aggressively pushing discounts through its mobile app in recent months, on Tuesday told its franchisees that by the end of the year they will have no choice but to accept them.
In a message to its operators, the company said they would have to start accepting offers through the mobile app by Dec. 28, several franchisees told Restaurant Business.
The reaction among operators was swift. “I think it’s bullshit,” one franchisee told Restaurant Business. A few franchisees we spoke with had similar reactions.
To Subway, the move is important to drive sales through the company’s digital channels. And the Miami-based chain argues that digital sales are “incremental” and therefore more profitable to the franchisee.
“Healthy business growth is key to helping increase franchisee profitability, and this includes maintaining a strong value proposition for our guests,” the company said in a statement emailed to Restaurant Business. “Our data continues to show that restaurants which consistently accept coupons experience higher sales and traffic.”
“The majority of digital transactions represent incremental sales for many of our franchisees, and the Subway app continues to be one of our strongest growth channels,” the statement said. “Dedicated digital promotions generate a lift in digital sales for our franchisees. Even after the offer period has ended, these promotions provide ongoing momentum in the digital business and encourage repeat Subway guests.”
Subway has run numerous offers over the past several months, either through traditional paper coupons or through its mobile app. Many of these offers are aggressive. A recent coupon drop offered several substantial discounts on footlong subs, such as three for $17.99, essentially half off three 12-inch sandwiches. Its current digital promotion is buy-one, get-one half off.
Many operators do not accept the offers. The company’s app features a label on locations indicating whether they accept a certain offer.
Subway says about 90% of operators accept its digital offers, but franchisees told Restaurant Business they think that number is too high. Two franchisees put the estimate at closer to 60% to 70%. Many operators “cherry pick” what offers to accept.
“We currently keep roughly half of the offers that financially we can afford to offer, and that hopefully drives different guest behavior,” said one franchisee, who said they do not accept the $17.99 coupon offer, for instance.
Some franchisees also questioned whether Subway has the right under their franchise agreement to require they accept digital discounts.
Other operators, however, say that it’s better for the brand to drive more business to digital channels. “The more we can move guests to the digital space, the better,” said Cory St. Esprit, a 24-unit Subway operator who is opening locations. Esprit's locations accept all paper and digital coupons.
The digital discount requirement comes as Subway is being sold to Roark Capital for $9.6 billion. But, according to multiple reports, Roark is requiring the sandwich giant to meet certain financial metrics for the company’s shareholders to get that full price. That could put some pressure on the brand to generate sales in the coming months.
At the same time, brands have been pushing customers to their mobile apps, typically through discount offers and other strategies. Franchise brands want customers on digital apps because it provides them with more information on consumers, particularly if they join the loyalty program—which opens one-to-one marketing ideas.
Brands believe that, by shifting value offers to the app, they can generate incremental sales by attracting customers looking for value, without leading existing customers to shift to value offers.
Companies want as many stores to accept these digital offers as possible, given that it can anger customers when too many stores refuse to accept them. At one point, St. Esprit’s stores wouldn’t accept certain digital offers but he eventually decided to accept everything, believing it wasn’t worth the hassle. “We’re not in the business to make guests mad,” St. Esprit said.
Still, discounts that grow too aggressive can be problematic for franchisees, particularly in a brand like Subway that has low average unit volumes, and where profit problems led to the closure of about 7,000 restaurants since 2015.
Subway has traditionally been a value brand, needing as many customers as possible to support a store base of some 20,000 U.S. locations. The $5 footlong offer it ran during the Great Recession proved to be a massive hit and afterward staked its claim to the value position. In recent years, however, it has aggressively used discounts and coupons to lure customers. Come the end of the year, franchisees will have to get on board with the digital deals.
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